Cash alternatives such as payment cards are used in a variety of environments. In order to ensure the cardholder has sufficient funds or credit to make a purchase, an authorization can be sought for every pending sale. An approval for a sale is ordinarily sent to the merchant's point of sale (POS) equipment from a card-issuing financial institution that verifies the availability of funds or credit in the cardholder's account.
Some spending environments are characterized by frequent cardholder transactions, most of which are relatively low in value. These environments also typically demand high transaction speeds and solution reliability. One proposed solution for addressing such demands is to automatically approve a transaction the first time a cardholder's account number is utilized at a merchant location. Subsequent to such “approval,” an authorization request can be generated.
Proprietary “closed loop” systems that do not involve interbank fund transfers provide for the local processing of transactions. Authorization from an issuer such as a bank or credit union is not required by such systems. In “open loop” systems, balances are ordinarily held on the card issuer's server or as a pre-authorized balance on the actual payment card.